Australian Stocks Drop
Australia’s S&P/ASX 200 index snapped a three-day rise, led by financial stocks after Suncorp Metway Ltd. reported a slide in profit and Goldman Sachs JBWere Ltd. slashed its share-price forecast for the nation’s financial shares.
Suncorp, Australia’s second-largest car and home insurer, reported a 28 percent drop in first-half earnings after credit costs crimped returns and it had to pay higher payouts after storms in northern Queensland. Analysts at Goldman Sachs including James Freeman lowered their forecast for Australian banks by as much as 26 percent, citing increasing concerns over their earnings.
Suncorp is “swimming in the same ocean as a sector that hasn’t seen a lot of positive news,” said Hans Kunnen, who helps manage the equivalent of $128 billion at Colonial First State Global Asset Management in Sydney. “Higher interest rates and slower growth in bank profits are really crunching the finance stocks.”
ABC crisis forces $50m stock dump
ABC Learning Centres founder Eddy Groves is on the verge of losing control of the crisis-ridden company, with directors forced to dump $52 million worth of shares as mystery investors emerged with the potential to seize majority ownership of the childcare empire.
The company is facing a possible insider trading investigation by the Australian Securities and Investments Commission after Australian chief executive Martin Kemp was forced to sell $7.5million worth of shares on Friday – two days before the stock crashed to record lows on concerns about margin loans and its debt level.
It is believed the sale was triggered by a bank calling in a margin loan over the shares, but legal sources said clear evidence would be needed that this was the case to avoid an insider trading investigation.
Mr Groves and his wife, Le Neve, yesterday admitted they were among four directors forced to sell shares to meet margin calls, slashing their stake in the business from almost 8 per cent to less than 4 per cent.
ABC yesterday signalled possible asset sales to help cut its debts, with analysts speculating it might offload its 1000-plus childcare centres in the US after an approach from an unnamed buyer.
But another serious issue confronting the board is the ownership of so-called “exploding” convertible notes issued by the company last year that could be turned into a controlling stake in the business if the share price continues to collapse.
Unlike normal convertible notes, which holders can convert into a certain number of shares, the exploding notes are converted into a dollar amount of shares. This means the $600million worth of ABC notes buy a much bigger stake in the company as its share price, and stockmarket value, falls.
At the current market capitalisation of $1 billion, based on the last share price of $2.14, the notes could deliver the owners a 37.5per cent stake in ABC. But if the share price falls as low as Tuesday’s nadir of $1.15, the note-holders, believed to include the Commonwealth Bank’s CommSec broking house, could take control of ABC.
There was speculation last night that hedge funds had been driving down the value of ABC shares at the same time they were buying the convertible notes. Bain Capital Partners, a US private equity firm, was named as one potential buyer of the ABC shares.
The benchmark S&P/ASX 200 index slid 116, or 2 percent, to 5,651.20 at the close in Sydney, as three stocks fell for each that rose. It was the worst-performing index in Asia today.
Suncorp, tumbled A$1.22, or 7.9 percent, to A$14.31, set for its weakest closing price since Jan. 22.
A sub-index of financial stocks slipped 3.4 percent, the worst performing group on the index today. The measure has lost 21 percent so far this year as rising defaults from U.S. subprime, or high risk, mortgages reduced the amount of credit available worldwide and slashed U.S. company earnings.
National Australia Bank Ltd., the country’s biggest bank, declined A$1.36, or 4.3 percent, to A$29.97, a three-day low. Goldman Sachs JBWere shaved its estimate for the bank’s shares 19 percent to A$35.35.
Australia & New Zealand Banking Group Ltd. slipped 3.6 percent, Westpac Banking Corp. fell 3 percent and St. George Bank Ltd. declined 5.6 percent. Goldman Sachs JBWere cut its price targets on the three by 4.7 percent, 13 percent and 14 percent, respectively.
Macquarie Group Ltd., Australia’s largest securities firm, snapped five rising days, losing A$3.04, or 5.1 percent, to A$57.04.
Australia’s central bank boosted its benchmark rate to an 11- year-high of 7 percent this month in a bid to cool the fastest inflation rate the country has seen in almost two decades. Odds the bank will raise rates again at its March 4 meeting are at 90 percent, according to a Credit Suisse index of interest-rate swaps. Higher interest rates deter customers from borrowing and increase the cost of finance for banks
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